I remember participating on a panel shortly after the Affordable Care Act passed to discuss the newly enacted taxes related to the bill. I was the last panel member to speak and after listening to all of the complexities relating to the implementation of the ACA I remarked that it was awesome to finally sit on a panel where taxes were the easiest thing to understand.

This comment rang particularly true earlier this week as the headlines were dominated with the Senate’s efforts to repeal and replace the ACA. Yet, while healthcare legislation continues to struggle, there were new signs that comprehensive tax reform may still be achieved this year.

On July 18 the House Budget Committee released its fiscal year 2018 budget resolution, which will serve as the legislative vehicle for comprehensive tax reform. The budget resolution allows the House Ways and Means Committee to move forward with tax reform that grows the economy through revenue-neutral means and identifies savings to move the country towards a balanced budget.

The budget blueprint, “Building a Better America — A Plan for Fiscal Responsibility,” is considered a major governing document for the 115th Congress. It instructs the Ways and Means Committee to craft deficit-neutral tax reform to boost the economy and unleash the power of the American entrepreneurial spirit that:

Simplifies the tax code to make it fairer to American families and businesses and reduces the amount of time and resource necessary to comply with tax laws,

Lowers tax rates for individuals and consolidates the current seven individual income tax brackets,

Repeals the alternative minimum tax (AMT),

Reduces the corporate tax rate, and

Transitions the tax code from a “worldwide” system to a “territorial” system.

Chairman Orrin Hatch opened with a reference to President Reagan’s main goals for the 1986 tax reform: fairness, efficiency and simplicity, and added a goal of American competitiveness. He pointed out that the 1986 tax reform was a shift toward a pure taxation of income but that the times have changed and perhaps it was time to look at a different model.

Pamela Olson, U.S. deputy tax leader of PwC, testified that many economists have concluded that consumption-based taxes are a more efficient way of raising revenue than the corporate income tax. “As I look out into the future, we have a rising difference between what we expect to be collecting in revenues, and what we expect to be spending, and we have to find some way in addition to making tax reform easier, to close that gap, and a consumption tax seems to be something that is a very viable alternative and should be carefully considered by the committee,” Olson said.

These statements in support of a system based on something other than an income tax are critical to understanding the shift in thought that appears to be happening, at least at some levels, in Washington. They indicate an awareness that only taxing income allows revenue to slip through the cracks and helps create an enormous tax gap — currently at $486 billion for 2016. If a consumption-based tax is eventually supported, the U.S. also could achieve its other goal of becoming more competitive globally, allowing us to reduce our corporate income tax rates.

One final note from Chairman Hatch’s testimony. He noted that there is no longer any question as to whether we should reform the tax code. The only questions remaining are: How and when? With the apparent inaction on changes to health care, now seems to be the perfect time to answer those questions.

Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.